Consultants Point to 'Wealth of Opportunities' in China Amid Recent Poor Performance

Amid recent poor performance of China and other emerging economies, investment consultants highlight continued opportunity in the sector.  

(January 30, 2012) — China’s importance as a primary driver of growth for the global economy will continue to attract the attention of institutional investors from around the world, consulting firm Towers Watson has predicted. 

China continues to attract attention as a primary growth engine for the global economy in the coming years despite problems with Europe’s sovereigns and concerns with the US economy tending to dominate attention of most investors, Naomi Denning, Head of Investment, Asia Pacific, at Towers Watson, wrote in a whitepaper. “Of course, China is not immune to the challenges facing the rest of the global economy and has challenges of its own, but I suspect very few investors are not at least thinking about how they can benefit from China’s growth and how their investment portfolio can be positioned to take advantage of the opportunities in China,” she concluded.

According to the consulting firm, China never lost its glow for serious international institutional investors “but it has had its lights dimmed briefly by an interim crisis of confidence among short-term market riders.” After three decades 

of double-digit growth, China grew around 9% when the crisis was in full swing and the country is expected to maintain a growth rate through a protracted period of global economic slowdown, Towers Watson said, acknowledging that growth may be slowing. 

The whitepaper by Towers Watson continues: “Growth may be slowing, but the outlook for China is considered healthy compared with the situation of many other countries. In contrast to the weaknesses and current account imbalances of major developed economies, China’s low national debt and large reserves provide a solid base for moving forward.”

New England-based investment consulting firm NEPC has echoed the perceived continuing opportunity in China and other emerging economies. “Despite recent poor performance, emerging markets remain a key recommendation of NEPC…Part of our long-term case for developing markets is that we expect emerging market currencies to continue to appreciate relative to the dollar, boosting returns for unhedged local currency investments.”

Meanwhile, late last year, research by the Emerging Markets Private Equity Association (EMPEA) highlighted an improvement in the emerging market sector, concluding that private equity investment in emerging markets is returning to pre-crisis levels.

The firm found that in total, India and China — the two Asian giants — attracted 68% of private equity capital invested in emerging markets in the first six months of 2011, with $5.8 billion going into China and $3.8 billion into India.

“Western institutions are continuing to seek greater exposure to the world’s fastest-growing markets, and institutions in the emerging markets themselves are significantly ramping up their investment in the asset class,” said Sarah Alexander, President and CEO of EMPEA, in a statement.

Related article: Are Emerging Markets the Next Bubble?